Freightways Delivers Sound Half Year Result
22nd February 2016
Freightways Limited (NZX: FRE) has delivered a sound result for the half year ended 31 December 2015, with the information management division helping to lift consolidated operating revenue to a record high of $255 million for the period, 5% above the prior comparative period (pcp).
Compared to the pcp, which had included four extra trading days, earnings (operating profit) before interest, tax, depreciation and amortisation (EBITDA) increased by 5% to $51 million, earnings (operating profit) before interest, tax and amortisation (EBITA) increased by 6% to $45 million, net profit after tax and before amortisation (NPATA) increased by 7% to $29 million and net profit after tax (NPAT) increased by 5% to $28 million. Earnings per share (EPS) of 18 cents per share was 5% above the pcp.
On the strength of this reported result, Freightways' Directors have been able to declare an interim dividend of 12.75 cents per share, fully imputed at a tax rate of 28%, being a 6% increase above the pcp dividend of 12 cents per share. This represents a payout of approximately $19.7 million, compared with $18.5 million for the pcp dividend. The dividend will be paid on 4 April 2016. The record date for determination of entitlements to this dividend is 18 March 2016.
Managing Director, Dean Bracewell, says Freightways is "clearly benefitting from its diversification into the information management industry on both sides of the Tasman, with this division recording revenue growth of 20% above the pcp and operating earnings more than 20% above the pcp. The division now generates approximately 30% of the group’s revenue and operating earnings." Five years ago the information management businesses contributed around 20% of Freightways’ total revenue and operating earnings.
The operating revenue for the core express package & business mail division for the half year ended 31 December 2015 of $187 million was 1% higher than the pcp. EBITDA of $35 million and EBITA of $32 million were both 1% lower than the pcp. Allowing for the four extra trading days in the pcp, this result would have been above the pcp. This division operates a multi-brand strategy through its domestic brands of New Zealand Couriers, Post Haste, Castle Parcels, NOW Couriers, SUB60, Security Express, Kiwi Express, Stuck, Pass The Parcel, DX Mail and Dataprint.
An aircraft upgrade was recently announced that will see a transition from the existing Convair fleet to Boeing 737-400s. Mr Bracewell says the project is "running to schedule with the first Boeing having arrived in time to assist with peak Christmas volumes" . Two further Boeing 737-400 aircraft are expected to arrive and be fully operational by May 2016.
Negotiations have been completed with Christchurch International Airport to lease a new purpose-built facility to enable the consolidation of operations from three separate facilities into one, with airside access to the Boeing 737-400 fleet. This new facility will be fully automated, enabling a reduction in the manual handling and sorting of freight. The cost of approximately $11 million for this project will be invested progressively throughout the next 14 months, with the completed facility expected to be fully operational early in the second half of the 2017 financial year.
During the last six months, branch relocations to larger premises occurred in Dunedin and Tauranga creating more capacity to accommodate current and expected future growth.
Business mail operator, DX Mail, continued to expand its postie network and now offers 5 days a week delivery in an increasing number of locations across New Zealand. Significantly, while the overall letter market continues to decline, the demand for DX Mail’s service is increasing. Dataprint, which provides physical and digital transactional mail house services, also increased market share in all its service lines, both physical and digital.
The information management division, which now operates as The Information Management Group (TIMG) on both sides of the Tasman, delivered a record operating revenue of $69 million for the half year ended 31 December 2015, an increase of 20% on the pcp, which had included the benefit of four extra trading days in NZ. For this half year, EBITDA of $17 million and EBITA of $14 million were 22% and 25% higher than the pcp, respectively. The one information management brand that will continue to operate under its own name is Shred-X, which is uniquely positioned and has a particularly strong brand presence across Australia.
Mr Bracewell says the increased utilisation of existing facilities, as a result of increased box and data storage volumes from new and existing customers, the successful integration of recent acquisitions in New Plymouth, Sydney and Brisbane, and improved performance from LitSupport, purchased in late 2014, all contributed to the solid result achieved by the information management division. While LitSupport did not achieve its initial 12-month performance target, requiring the vendors to repay approximately A$5 million of the purchase price, the business has increased sales momentum and completed a cost restructure, to position the business better for the future.
According to Mr Bracewell, demand for the digital information management services offered by TIMG continues to increase.
The three internal service providers, Fieldair Holdings (airfreight linehaul), Parceline Express (road linehaul) and Freightways Information Services (IT support) continue to deliver quality service which underpins the service provided by the front-line businesses.
Corporate overhead costs continue to be well maintained, with the acquisitions during the half year being funded from a combination of operating cash flows and borrowings from existing finance facilities.
Capital expenditure for the full year is expected to be $20 million to support the growth and development of both Freightways operating divisions. Overall cash flows are expected to remain strong throughout the 2016 financial year.
Looking forward, Mr Bracewell says that Freightways is well positioned in markets that are expected to deliver long-term growth. In the near-term however, and at least for the balance of the 2016 financial year, given the current volatility in markets around the world, it remains cautious in its outlook. "However, we see the benefits of our diversification into the information management industry, where continued forecast growth is expected, increasingly underpinning the company’s performance, as the more cyclical express package & business mail sector enters a period where achieving year-on-year growth may be more challenging."
Freightways is a leading provider of express package & business mail services throughout New Zealand, with a strong presence in information management on both sides of the Tasman.
For further information contact:
Ph: (09) 571 9670
Fax: (09) 571 9671